China: Brief Review Of The Newly Revised Chinese Anti-Unfair Competition Law

Last Updated: 15 March 2018
Article by Stephen Crosswell

On 4 November 2017, the Anti-Unfair Competition Law of the People's Republic of China (the AUCL) was amended for the first time since its promulgation and implementation 24 years ago in 1993, and the revised AUCL (the Revised AUCL) came into effect on 1 January 2018. Since announcing the proposed revision of the AUCL, there have been heated discussions, especially within and amongst intellectual property related industries and professionals. The revisions to the AUCL reflect changes to and developments in the socialist market economy over the past two decades, and specifically seek to refine legal concepts in the area of anti-unfair competition law, increase the legal responsibilities of business operators and strengthen enforcement measures, so as to create a more advanced anti-unfair competition system.

As the amendments to Article 2 (on the scope of applicability of the AUCL), Article 6 (on "confusing behaviors"), Article 9 (on trade secret violations) and Article 12 (on unfair competition activities committed on the internet) are particularly worthy of note, the abovementioned amendments will form the subject of the discussion below.

I. Article 2 of the Revised AUCL – refinement of its scope and clarification that it operates as a "catch all" provision

In practice, Article 2 of the AUCL was often used as a general catch-all provision, and played an important role in "catching" new or atypical acts of unfair competition.

In a draft revision of the AUCL, attempts were made to clarify the applicability of Article 2. Originally, draft Article 15 provided that with regard to behavior which has a serious adverse impact on the competitive environment and in respect of which the applicability of Article 2 falls to be considered, the Administration for Industry and Commerce under the State Council shall, independently or together with relevant departments under the State Council, investigate and render an opinion on whether the act should be regarded as an act of unfair competition, and report the same to the State Council for its decision. However, as such an amendment would increase uncertainty and the difficulty in applying Article 2, draft Article 15 was not adopted. Instead, Article 2 was revised, and Article 17 included to confirm that legal liability will attach to all acts of unfair competition which compromise the legitimate rights and interests of business operators. Such amendments enlarge the scope of Article 2, and in the eyes of many academics and practitioners, confirm that Article 2 of the Revised AUCL is a general provision that can be directly relied upon.

II. Article 6 of the Revised AUCL – clarification of the term "confusing behavior"

1. Meaning of "confusing behavior"

Article 6 of the Revised AUCL replaces Article 5 of the AUCL, and no longer includes paragraphs (1) and (4) in Article 5. As a result of the amendments, "counterfeiting another's registered trademark" and "forging or fraudulently using quality marks on goods, or geographical indications, so as to mislead consumers as to the quality of the goods" will no longer be considered acts of unfair competition. The deletions aim to clarify the boundaries between, amongst other laws, the Revised AUCL, the PRC Trademark Law and the PRC Product Quality Law.

Further, the revised Article 6 elaborates on the meaning of "confusing behavior". Behaviour is only "confusing" if it is or is likely to be misleading in that it causes or is likely to cause another to misidentify the source of the goods or to mistakenly believe that there exists some sort of connection between the goods and the brand owner. Under Article 6, there are four types of "confusing behavior", the first three of which are deemed to have the effect of misleading people in the abovementioned manner: (1) using or copying the name, packaging or decoration of another's famous goods, (2) using another's trade name, (3) using another's domain name, website name or any other name in the internet context, and (4) other confusing behaviors. Type (4) is a residual open-ended category and would catch for instance the use / copying of the overall appearance of another's goods, the names and colour schemes used in the marketing of another's goods etc., provided that confusion can be established.

Additionally, previously, Article 5 required the "name, packaging and decoration of famous goods" to have achieved "well-known status" under sub-section (2) of paragraph 1 before they could be afforded protection, whereas this "well-known status" requirement did not apply to other names, such as trade names (though a Supreme People's Court interpretation stipulated that only those trade names that are known to the relevant public and enjoy a certain degree of fame could be afforded protection). Now, instead of imposing a "well-known status" requirement, Article 6 of the Revised AUCL imposes a "certain degree of influence" requirement, which extends to all types of names. Such amendment is logical as it is only when names, indications etc. have achieved a certain degree of influence and are familiar to the public that confusion can arise.

The "certain degree of influence" requirement sets a lower threshold than the "well-known status" requirement. For further guidance as to what the "certain influence" requirement entails, reference can be made to Article 32(1) of the PRC Trademark Law (re prior use of trademarks with a certain degree of influence), and the way in which the provision has been applied in practice.

2. Stipulation of the legal consequences for engaging in confusing behavior and provision for harsher administrative penalties

Article 18 of the Revised AUCL clearly stipulates the potential legal consequences that could follow from violating Article 6, including an order to cease the infringing acts, a confiscation order in respect of the infringing commodities, and/or administrative fines. Article 18 also increases the maximum amount of administrative fines that can be imposed, from up to three times the amount of the illegal turnover to, if the illegal turnover is greater than RMB 50,000 (approx. USD 7,400), up to five times the amount of the illegal turnover, and if the illegal turnover is less than RMB 50,000 or if no illegal turnover is generated, up to RMB 250,000 (approx. USD 37,000).

3. More practical legal measures to correct confusing trade names

In practice, some enterprises take advantage of loopholes in the trade name registration system to register another's registered trademark or trade name as one's own trade name. Such registrations easily cause consumer confusion and infringe upon the lawful rights of prior right-holders.

Article 58 of the PRC Trademark Law, which came into effect on 1 May 2014, provides that: "Where one uses another's registered trademark or unregistered well-known trademark as or in one's own trade name in a manner that misleads the public and results in unfair competition, such matter shall be handled in accordance with the PRC Anti-Unfair Competition Law." Article 6(2) of the Revised AUCL corresponds with Article 58 of the PRC Trademark Law.

However, prior right-holders often face problems enforcing administrative and judicial decisions, mainly because the current legal regime requires the infringing entity registering or using the prior right-holder's name to be the one to change or deregister the infringing trade name, and in many cases, the infringing party refuses to cooperate. Article 18(2) of the Revised AUCL aims to rectify this legislative shortcoming by providing that: "Where a registered trade name is in violation of the provisions of Article 6, the registrant shall apply for a change of name in a timely fashion. Before the change is effected, the original enterprise registration authority shall replace the registrant's name with its uniform social credit code". This provision for the first time clearly stipulates in legislation specific administrative corrective measures that are to be taken to combat inappropriate trade names, which will be of help in the fight against copycat brand names.

Having regard to this change, prior right-holders should, when they initiate civil litigation against infringing parties, request the infringing party to change its trade name, rather than deregister its infringing trade name. Otherwise, the administrative authorities responsible for effecting the name change may refuse to cooperate on the basis that the court decision requires deregistration instead of modification.

As mentioned above, under the Revised AUCL and other relevant regulations, prior right-holders can require the original enterprise registration authority to replace the infringing party's trade name with its unified social credit code on the State Enterprise Credit Information Disclosure System if the infringing party refuses to change its trade name. However, even if the original enterprise registration authority replaces the infringing party's trade name with its unified social credit code, it remains to be seen what would happen if the infringer continues to use the infringing trade name. The infringer may still possess and use its business licence and other certificates listing the infringing trade name, and the administrative management authorities will need to issue additional regulations to address this issue.

III. Article 9 of the Revised AUCL – trade secrets

The Revised AUCL broadens the definition of "trade secrets", from one which requires the secret to have "practical value" to: "... technical information or business information which is unknown to the public, has commercial value and in respect of which the right owner has taken corresponding measures to ensure its confidentiality."

Additionally and more importantly, the Revised AUCL makes provisions for third-party infringement in cases where the proprietor of the trade secret is the employer of the trade secrets infringer. Under the Revised AUCL, a third party will be held to have infringed upon a proprietor's trade secret if the third party was aware that the proprietor's employee or ex-employee, another organization or an individual had obtained the trade secret through illegal means. This is a commendable improvement as it increases protection of employers' trade secrets and deters third-party infringement.

Another important change is the increase in penalties for violating trade secrets. Under Article 17 of the Revised AUCL, the maximum statutory compensation payable in civil cases is now RMB 3 million (approx. USD 441,000), up from RMB 1 million (approx. USD 147,000). Furthermore, administrative penalties have increased under Article 21 of the Revised AUCL, and parties who have violated trade secrets are now liable to be punished with fines of between RMB 100,000 and RMB 500,000 (approx. USD 15,000 to USD 74,000), or between RMB 500,000 and RMB 3,000,000 (approx. USD 74,000 to USD 441,000) in serious cases. Finally, the revised law requires authorities to maintain the confidentiality of trade secrets during investigation.

IV. Article 12 of the AUCL – addition of new provisions on internet related unfair competition activities

With the continuous development of social and economic conditions as well as the internet in China, a large number of cases in respect of internet related unfair competition activities have arisen. Previously, the good faith principle under Article 2 of the AUCL was often used by courts in such cases. However, Article 12 of the Revised AUCL now specifically addresses unfair competition activities conducted on the internet, which are specified to include (1) inserting links to a network product or service offered by another without that other's consent, which, when clicked on, automatically redirect the user to pages of other targets; (2) misleading, deceiving or forcing users to revise, shut down or uninstall a network product or service offered by another; (3) maliciously making a network product or service offered by another incompatible with one's own products or services, and (4) engaging in any other act that interferes with or sabotages the normal running of a network product or service offered by another.

Article 12(1) to (3) is a codification of recent important court decisions, such as Baidu v Qihoo (the flagging search results and hijacking traffic case) ((2014) Min Shen Zi No. 873) and Tencent v Qihoo (the "Kou Kou Bodyguard" case) ((2013) Min San Zhong Zi No. 5). As an exhaustive list cannot comprehensively capture every act of unfair competition committed on an evolving internet with constantly changing technologies and business models however, Article 12(4) was also included to serve as a catch-all provision to cover unforeseeable internet cases.

In terms of the penalties that can be imposed for engaging in acts of unfair competition on the internet, Article 24 of the Revised AUCL sets out the administrative penalties. In respect of civil liabilities, unlike Article 6 (re engaging in confusing behavior) and Article 9 (re violating trade secrets), the newly Revised AUCL does not set out a statutory compensation scheme for violations of Article 12, and in previous unfair competition cases involving the internet, courts have awarded compensation of up to RMB 5 million (approx. USD 735,000) (e.g., Tencent v Qihoo "Kou Kou Bodyguard" case)

In sum, the newly Revised AUCL provides more specific guidance on what constitutes "confusing behavior" and an act of unfair competition on the internet, and also adopts broad descriptions and catch-all provisions to address new forms of unfair competition in the market. Additionally, the AUCL increases penalties for specific acts of unfair competition and provides for more practical remediable measures to be adopted. These provisions will help maintain market order and the competitive environment, and safeguard the legitimate interests of business operators. We await application of the relevant provisions and measures by way of administrative and judicial enforcement, to further clarify the meaning and applicability of provisions of the Revised AUCL.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions